Barclays reports a 38% drop in net income for 2020 and resumes paying dividends

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Barclays on Thursday reported full year earnings of £ 1.53 billion ($ 2.11 billion) for 2020, a 38% decrease from 2019, but exceeding analyst expectations.

The UK lender made £ 220m net income attributable to shareholders in the fourth quarter, despite the UK taking new nationwide lockdown measures amid the Covid-19 resurgence.

The strong performance of the corporate and investment bank, whose net income rose 22% to £ 12.5 billion, offset a sharp surge in impairment charges due to the deteriorating economic outlook caused by the pandemic.

Analysts polled by Refinitiv had expected a net loss of £ 44.88m in the fourth quarter would translate into net income of £ 1.22b for the full year. Barclays shares fell 4.2% in early trading.

Jes Staley, CEO of Barclays, told CNBC’s Squawk Box Europe on Thursday that demand in the UK economy was pent up to unlock later in the year.

“The UK consumer has slashed spending significantly in the face of the pandemic, but has invested in strengthening individuals’ balance sheets for the same reason, particularly by increasing their deposits, and we believe that is the case on our balance sheet”, said Staley.

“Believe that once the pandemic is over these deposits will represent pent-up spending and we will hopefully see that in economic activity in the second half of this year.”

The 2020 final earnings report followed a surprisingly strong third quarter in which the bank posted net income of £ 611m.

Full year profit for the previous year was £ 2.46 billion on fourth quarter 2019 profit of £ 681 million.

Further highlights:

  • The core capital ratio (CET1) reached an all-time high of 15.1%.after 14.6% at the end of the third quarter.
  • The return on equity (RoTE) was 3.2% after 5.1% in the previous quarter.
  • The net interest margin (NIM) was 2.61% after 3.09% at the end of 2019.
  • Loan impairment charges for the full year were £ 4.8 billion compared to £ 1.9 billion in 2019.
  • Pre-tax profit for the year was £ 3.1 billion, down from £ 4.4 billion in 2019.

Dividend payments

Barclays also announced that it will resume dividend payments to shareholders of one pence per share and begin a £ 700 million share buyback. The Bank of England last year requested that UK lenders suspend payments to shareholders.

Addressing the decline in RoTE, Staley said that the diversified business model implemented five years ago would allow the bank to remain profitable each quarter of 2020, with the investment bank responding differently to the consumer banking business.

“While our consumer bank struggled and drove that profitability, in large part because we had spent significant impairment losses on building a reserve, the investment bank actually had a return on investment of over 13% over the year, keeping the bank profitable every quarter,” he said.